Hold Jubilant FoodWorks; target of Rs 1842: Edelweiss

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Edelweiss' research report on Jubilant FoodWorks

Jubilant FoodWorks’ (JFL) Q2FY18 revenue came in line, while EBITDA surpassed our estimates due to cost rationalisation. Key positives: 1) 5.5% YoY growth in SSG (on base of 4.2%), aided by Every Day Value and all new Domino’s ad campaign; and ii) 440bps expansion in EBITDA margin, aided by cost rationalisation (104bps YoY dip in employee cost, 94bps YoY fall in rent and 309bps YoY drop in other expenses). We expect the improvement in EBITDA margin (our estimate: 14.0% in FY18) to continue in H2FY18 due to the focus on cost reduction. The Dunkin Donut adverse impact has reduced from 244bps in Q2FY17 to 135bps in Q2FY18 and is on path to achieve breakeven by FY19. Further, JFL aims to sustain focus on value-for-money offerings across Domino’s stores through its Every Day Value offer. Maintain ‘HOLD’.

Outlook
We expect mid to high single digit SSG aided by low base and all new Domino’s ad campaign, coupled with sharp cost rationalisation, we expect EBITDA margin to boost by 436bps YoY in FY18. Hence, we raise our target PE multiple to 53x FY19E (50x earlier) and maintain ‘HOLD/SP’ with target price of INR1,842 (INR1,383 earlier). At CMP, the stock is trading at 65.6x FY18E and 47.3x FY19E EPS.
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